Commodities Daily - September 22, 2021

> Oil prices rise ahead of EIA inventory report with Fed decision looming. Today, investors are eyeing the weekly EIA inventory report and the Fed decision. If the former initially supports Brent toward $75.80/bbl, showing strong stock draws across all categories, the Fed decision will likely pressure Brent back below $75.00/bbl later in the day amid potential expectations of faster rate hikes and a stronger dollar.> Gold gained ahead of the FOMC results. Gold increased from $1,765/oz to $1,775/oz yesterday despite the 10y UST yield having risen from 1.30% to 1.33%. Gold is trading near $1,775/oz as we write. Today, the market awaits the Fed decision, US existing home sales for August and eurozone consumer confidence for September. We expect bullion to try to retest support at $1,750/oz today.> Metals mixed, some testing technical support; Fed decision in focus. Base metals traded mixed yesterday, with volatility elevated amid investor concerns about the Evergrande story and today's Fed decision. Copper tested an important support, but seems to be set for a rebound today judging by the technicals. The Fed decision will define where metals markets go for the rest of the week.OIL PRICES RISE AHEAD OF EIA INVENTORY REPORT WITH FED DECISION LOOMINGYesterday, after sliding $1.90/bbl to $73.30/bbl, Brent rebounded back toward $74.80/bbl as the PBoC injected more short-term liquidity into the financial system, which helped to alleviate some concerns over the Evergrande story and boosted industrial commodities. Front-month Brent eventually settled at $74.36/bbl, $0.44/bbl below the previous settlement. This morning, it is rising toward $75/bbl after the API reported another strong weekly draw in crude oil inventories (down 6.11 mln bbl), combined with a 0.43 mln bbl draw in gasoline stocks and 2.72 mln bbl draw in distillates. US crude oil inventories sank to a two-year low, and a decline in today's EIA data could mean they are at their lowest levels since 2018, primarily because of ongoing regional disruptions to Gulf of Mexico oil production and refining caused by Hurricane Ida.The spread between Brent's two nearest December contracts is currently rising toward $6.40/bbl backwardation, versus $3.05/bbl in mid-August, which indicates a bullish pattern. Investors are more positive about the outlook and are pricing in expectations of a tighter market going forward. Backing this up was the ConocoPhillips CEO yesterday telling Bloomberg Television that he sees oil demand returning to pre-pandemic levels by early next year, with supply, on the other hand, remaining constrained by the OPEC+ deal and shale producers responding to higher prices by trying to lower their costs and boost financial returns. The UEA and Iraq recently said that OPEC+ should carry on ramping up supply as planned. The group is to meet on October 4 to review the next (November) monthly incremental production rise of 0.4 mln bpd. In mid-August, amid a coronavirus case spike in Asia we saw the possibility that OPEC+ could for one month (either for November or December) pause its gradual restoration of output, but given the current fears of an energy crisis amid surging gas prices, especially in Europe, we think that such a bullish move from OPEC+ is now highly unlikely. Today, apart from the weekly EIA inventory report, investors are eyeing the Fed decision. On the back of the recently weak economic data, the Fed will likely postpone a tapering announcement until November-December. However, it is likely to significantly raise its inflation forecasts for both this year and next, as well as note the risks of higher inflation. Against this backdrop, it should continue to expect rate hikes of 50 bps in 2023. In addition, for the first time, a forecast for 2024 will be published, which could suggest another 50 bps in hikes. Though this is more or less priced in, we would expect the dollar to strengthen following the decision, as markets could start to expect even more hikes, as they did after the June FOMC meeting. Thus, if the EIA report initially supports Brent toward $75.80/bbl, showing strong stock draws across all categories, the Fed decision will likely pressure Brent back below $75.00/bbl later in the LD GAINED AHEAD OF THE FOMC RESULTSGold increased from $1,765/oz to $1,775/oz yesterday, despite the 10y UST yield having risen from 1.30% to 1.33%. Meanwhile, EUR/USD remains steady near 1.173. The US macro data on the housing market was surprisingly upbeat. Building permits for August rose 6% rate m-o-m, well above the consensus of a 1.8% m-o-m decline, while housing starts showed a 3.9% m-o-m increase in August (consensus: 1% increase). Gold slightly corrected given that these upbeat figures were seen as helping to make the case for a hawkish Fed. However, the positive momentum for gold remains in place as lingering concern about the potential collapse of China's Evergrande Group continues to weigh on sentiment globally. The developer is on its way to one of the country's biggest ever debt restructurings. The group's main unit reached an agreement with yuan bond-creditors to make an onshore interest payment due tomorrow. Meanwhile, OECD published its updated interim economic outlook, which shows US GDP growth at 6.0% in 2021 and 3.9% in 2022. The previous forecasts from May were a respective 6.9% and 3.6%. The updated forecasts provided additional tailwinds for bullion. Global GDP was also moderately amended, to 5.7% in 2021 and 4.5% in 2022, versus a respective 5.8% and 4.4%. During Asian trading today, gold remained near $1,775/oz. Today, the market awaits the Fed decision, US existing home sales for August and eurozone consumer confidence for September. Most likely the Fed won't officially announce a tapering of QE at this meeting, although Chairman Powell may signal that he sees it appropriate to start reducing the bond-buying program this year. We think the Fed will increase its inflation outlook, while the dot plot will likely show 1% worth of rate increase until the end of 2024 (2024 will appear in the forecasts for the first time). We expect bullion try to retest support at $1,750/oz TALS MIXED, SOME TESTING TECHNICAL SUPPORT; FED DECISION IN FOCUSYesterday, base metals closed mixed. The 3m LME contract on copper was about flat at $9,019/tonne, while aluminum edged down 0.50% (down $14/tonne from the previous day's close) to $2,848/tonne, nickel was down 0.57% (down $108/tonne) at $18,845/tonne and zinc dropped 0.50% (down $15/tonne) to $2,998/tonne.Although for the day base metals demonstrated relatively moderate dynamics, volatility throughout the trading session was elevated, with some of the contracts hitting technically important levels. One such was copper, which plunged to $8,815/tonne, below the 200-day moving average, only to bounce back to finish level at $9,019/tonne. The fall came as investors continued to assess the implications of the potential collapse of Evergrande for the Chinese property sector and the whole economy. Today, copper opened higher, with technical analysis suggesting a rebound. Meanwhile, in the upcoming days base metals will be driven by the Fed decision today. With investors closely monitoring the event, we expect volatility to remain elevated.China today left its 1y loan prime rate (LPR) unchanged for a 17th consecutive month, as had been expected by most analysts. Last week, the PBoC stood pat on the rate for its medium-term lending facility (MLF), which had been seen as a precursor to today's LPR decision. However, with economic growth slowing and concerns around the property sector, Chinese authorities are likely to lower the required reserve ratio for banks further and might consider a key-rate cut in 4Q21. For commodities, like base metals, these moves should prove